Tuesday, May 05, 2009

Twittering the stock market!

Some traders are all a'twitter over Twitter
From Monday's Globe and Mail
May 4, 2009

When Tom Liston needs insight on one of India's largest companies, he doesn't pick up the phone to call a long-cultivated, top secret source – he logs on to Twitter to check up on a stranger who broadcasts messages semi-anonymously from the other side of the world.

“This guy trolls all the websites and reads things about Satyam [Computer Services Inc.] that would take me five days to go through. He finds summaries and posts them on Twitter,” says Mr. Liston, the Toronto-based director of research at Versant Partners.

Mr. Liston is no day trader – he checks in on Satyam because it competes with CGI Group Inc., a company he follows in his role as software analyst for Versant, a boutique brokerage. Mr. Liston is one of the growing number of investment professionals who are trying to figure out how to use Twitter to tap into the collective consciousness of market participants and communicate more directly with clients.

“I like to try and be cutting edge, and Twitter is another channel,” he says. “I'm using it as a little tool and I know I'm not likely to find something material. But I do get little bits of information on some of my companies – you find some employee somewhere who just lost his job or some other little nugget. Those things can be helpful.”

Jeff Pierce, 33, uses Twitter at a Vancouver internet cafe on Friday, April 24th, 2009. (Simon Hayter for The Globe and Mail)

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In addition to Mr. Liston's personal account, which is as likely to feature updates about soccer scores as investment opportunities, Versant is now blasting its research notes to clients via Twitter – likely a Canadian first.

Venture capitalist Mark McQueen, president and chief executive officer of Wellington Financial LP and one of Canada's most popular financial bloggers, has his own personal Twitter feed to which users can subscribe, in addition to Wellington's corporate feed.

“For investors, Twitter is as close to a ‘tailored information portal' as the Internet has ever offered,” says Mr. McQueen, who uses Twitter and his blog to increase the profile of his firm.

“Twitter gives everyone with a point of view a chance to get in on the action, without the time commitment required to have a credible blog.”

While investment professionals are taking tentative steps toward Twitter – Mr. McQueen can only think of a few in Canada who are actively posting to a corporate profile, likely because of compliance concerns – day traders and novice investors have been using the service since its inception.

It was with this in mind that hedge fund manager and Web entrepreneur Howard Lindzon and his partners founded StockTwits.com, which is a Twitter-based website. The site's power is in the way it aggregates opinion and sorts messages by stock symbol, allowing users to see all of the comments made about a stock or exchange in real time.

The free, six-month-old site has 54,000 members, although only 2,000 are active contributors.

Mr. Lindzon estimates that only 20 per cent of frequent posters are professional traders, while the rest are do-it-yourselfers eager to share their insights. Investors like to talk about their trades, he says, and the sense of community helps many shed feelings of isolation that can come with active trading.

“You can think of it as a human stock ticker,” he says. “The quality of the dialogue is quite high, because what you get are people who are working alone and want to share their stories. You get a sense of camaraderie as people try to help each other make money.”

And while some suggest Twitter is a fad just waiting to peak, Mr. Lindzon said it's only now gaining traction among professional traders.

Jeff Pierce, 33, uses Twitter (and StockTwits) to keep tabs on about 35 posters whose opinions he has come to respect. The Vancouver investor – who trades full time but stops short of calling himself a day trader – often sends questions out to see what sort of responses come back. He's rarely disappointed.

“I don't even know how people come across my tweets. The quality of the replies is actually pretty amazing,” he says.

That's not to say he makes his investment decisions based solely on the opinions of strangers.

While he does take some degree of comfort when he sees other Twitter users share his outlook for a stock or commodity, he prefers to use the service as a sentiment indicator.

“Right now I'm bearish on gold, and I can see that other people I respect are also bearish,” says Mr. Pierce, who writes a blog at zentrader.ca.

Of course, mining the Internet for company information isn't new – investors have been using online message boards to post anonymous gossip since the early days of online trading – but Twitter adds a measure of accountability into the mix.

Because the service is based on users following other users – essentially subscribing to their broadcasts – anyone who doesn't offer valuable insight tends not to have many followers. Those with a history of prescient calls, however, can build both their credibility and base of followers.

“What you get is a really good feel for the flow of the day,” says Mr. Lindzon, who was raised in Toronto but now lives in Phoenix. “You find out which stocks are being talked about, what people are skeptical about, and where people think the markets are going.”

And while some suggest Twitter is a fad just waiting to peak, Mr. Lindzon said it's only now gaining traction among professional traders. The more they use it, he says, the less likely they'll give it up.

“I think it just grows and grows in finance space,” he says. “Bloomberg's most popular application is chat - our use of Twitter just opens it up.”


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12:13 AM  

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